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Posted by Sorrells Garden on

Go against the flow

My Two Dollars yesterday had an interesting post about Detroit and how property values have fallen hard there, and probably have more room to fall. A few samples:

At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.

A boarded-up bungalow on the city’s west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000.

Now, let me say that I would never live in Detroit. But I’ve seen that when everyone seems to be saying that it’s crazy to own or buy property in an area, it’s time to take a hard look at that area because some good values can often be found. Detroit isn’t going to disappear tomorrow. It might be a little shaky there, but they’ll recover, and when they do, some of those dirt-cheap houses will sell for 10x or 20x what they were bought for. Those investors will invariably be viewed by many as “lucky” but as someone once said:

“Luck is what happens when preparation meets opportunity.”
-Seneca

Posted by Madison Jardine on

The hard way or the fun way?

Building wealth over the course of a lifetime is a pursuit that requires focus, dedication, and self-discipline. Living on less than you make and investing the difference is 90% of the battle, and we often think of this path as one of constant restraint, eating ramen noodles and spaghetti and shopping at thrift stores. Pinching every penny is one way to build wealth, but the good news is that once you get some momentum and see your wealth pass a certain point, a class of investments starts to open up that allows you to have fun and increase your wealth at the same time. CNN Money ran an article a few days ago with some ideas about how to live rich and then retire richer. Here’s a sample of my favorite suggestions:

  • Going global: Buy real estate in exotic locales. Imagine buying a small villa in an up-and-coming tropical paradise (they mention Uruguay) and holding on to it for the next 30 or 40 years. Not only will you have the enjoyment of the property, but you can rent it out to vacationers for some extra income. When you’re ready to retire, you can always keep it as a vacation home or sell it, likely for a tidy profit. What could be better?
  • Collecting profits: Invest in unknown artists. If you’re an art lover, buying works you love from artists who are poised to make it big is a win-win. You’ll get the enjoyment of the artwork and possibly make a handsome profit along the way. Granted, it may not be as lucrative as some stocks, but as the article points out, it’ll look a lot better on your wall than a stock certificate from Wal-Mart.
  • Start a business: Be your own boss.  Once you’ve amassed some cash, you could always take the plunge and start a business of your own.  Lots of advantages to this route, but beware: the vast majority of most small businesses fail within the first few years, so before you put your life savings on the line, make sure you can live with losing it.

Building wealth isn’t usually thrilling.  For the most part, it’s a slow and steady battle, which is what makes it so hard in the day-to-day.  But once you get to a certain point, it can be both rewarding and fun at the same time.  Hang in there…

Does anyone have other ideas on ways that you can invest and build wealth in ways that are enjoyable as well?

Posted by Madison Jardine on

Penny-wise and pound-foolish?

Interesting post yesterday on Free Money Finance about a couple of articles that discuss saving money on groceries. Some of the tips include the classics like cutting coupons, but also things like keeping a price notebook to record the prices of the stuff you normally buy?

My mom has always been a coupon person and a bargain hunter. She’ll drive all over town looking for the best deals on organic produce. I’ve never fully understood that philosophy. It seems like your time is worth more than trying to save $.50 on a cucumber. At what point does the gas you’re using and the time you’re spending outweigh any small savings? I know that small numbers add up, and especially when you have a lot of mouths to feed, it may make more sense.

For my wife and I, who both work, it’s just not usually worth it to try and do all this bargain shopping and coupon clipping. We order our groceries online and have them delivered for $10. Most of the things we buy are staple items and I do a quick check to see if there’s another brand or something that’s on sale. There are several “luxury” items that we simply do without if they’re not on sale.

The ironic thing to me is that I have seen a LOT of people who clip coupons and bargain shop to save a few pennies, but never contribute anything to retirement savings, never purchase a home, and never really get their act together when it comes to the bigger things. My wife and I try hard to keep the small things in order, like not eating out too much, and checking for things on sale at the grocery store, but we try a lot harder to keep the big things in order, like saving for retirement, moving our careers forward at a good pace, and investing in stocks and real estate. I’d much rather get a few of the small things wrong and hit the big ones than the other way around.

What about you? Do you have a different perspective on this?

Posted by Sorrells Garden on

Create your own charitable foundation

I’ve recently discovered one of the coolest things in personal finance that I’ve ever seen. It’s called the Fidelity Charitable Gift Fund, and it has a lot of implications for maximizing the efficiency of both your charitable giving and your tax strategy.

Private charitable foundations have traditionally been the playground of the mega-wealthy. The cost to establish, maintain, and manage a private foundation is not trivial, making it difficult for all but those with the largest of fortunes. However, in 1991, Fidelity launched their Charitable Gift Fund (CGF), making it possible for millions of people to create a mini-foundation. Here’s how it works:

  1. Make a contribution to the Gift Fund and set up a Giving Account that you name — such as, The Smith Family Fund — then be eligible to take an immediate tax deduction.
  2. Advise how to invest your contributions, giving the assets the potential to grow.
  3. Recommend grants from the Giving Account to the charities you support, with the option of being recognized or remaining anonymous.

Essentially, the CGF is one of the largest private foundations in the US. Individuals can open a Giving Account, which is run like a mini-foundation within the CGF. You can provide guidance on how you would like your contributions to be invested and “recommend” charities for them to donate your contributions to. Fidelity reports that the recommendations are followed in 99% of cases, unless the charity doesn’t qualify (no political donations, for example).

Some of the advantages of using the CGF are:

  1. Contributions can be deducted from your taxes as soon as you add them to your Giving Account, even before you distribute them to the charities and non-profits of your choice.
  2. Once you setup a charity or non-profit in your account, giving to that organization is a simple 1-click affair.
  3. Any non-distributed assets in your Giving Account are invested in mutual funds, giving you more money to give away down the road.
  4. The minimum contribution to open a Giving Account used to be $10,000, but Fidelity reduced the amount last year to $5,000. Subsequent contributions to your account must be at least $1000. A distribution to a non-profit organization can be as little as $100.
  5. The receiving charity doesn’t have to worry about dealing with direct stock donations.
  6. The CGF will accept cash, stocks, bonds, mutual funds, and real estate. This means that if you have stocks that have gained a lot in the last year, you can transfer them to your Giving Account, not only avoiding any capital gains taxes on those assets, but also giving yourself a generous deduction.

This last point is one of the most exciting to me. My wife and I have been richly blessed, financially and otherwise, and we contribute 10% of our income as a tithe to our church, charities, and other non-profit organizations. We also invest in index funds. I’ve come up with a plan to reduce my tax liability every year and maintain our desired level of giving, all while making our giving more convenient.  Part of this plan is based on a post from Free Money Finance, but the CGF adds a twist.  Here’s my strategy:

  1. For the next year, we’ll save up most of our 10% tithe instead of distributing it. The goal is to amass at least $5k so that we can open a Giving Account in December.
  2. At the end of the year, I’ll take a look at what investments have done well over the last year and select an amount of index funds that match the amount of tithe that we’ve saved. For example, if we have $5,500 in tithe saved up, I’ll select $5,500 of index funds that have increased in value over the last year.
  3. I’ll transfer the tithe money into my brokerage account.
  4. I’ll transfer the selected index fund shares into my CGF account and immediately use the tithe cash to purchase the same number of shares back off the market.

Now I’ve contributed my tithe (in the form of index fund shares) to my CGF and I can take the deduction for 2007. I also still own the same amount of shares that I owned before, but my cost basis has been reset without having to pay capital gains taxes. If I decide in 2008 to sell those shares outright, I’ll pay capital gains on the difference between the selling price and what I paid in 2007, not what I originally bought the shares for. In the case of a year where my investments didn’t do well and were all down from the last year, I could just contribute the tithe cash directly.

Please consult a qualified tax adviser before you try this. Can anyone offer me any insights as to whether this is a good idea?

Posted by Madison Jardine on

8 free things to get (and keep) your finances in order

These are some things to do that won’t cost you anything (or hardly anything) other than time, but will help keep your finances organized and under control. It’s a good idea to do these things at least on an annual basis. They may not directly improve your finances immediately, but if you stick with them over the long-term, you’ll see a dramatic change in your financial situation.

Create a written financial plan
If you don’t have written financial goals, drop everything and get it done. If you’ve never done it, it might be difficult to get into the groove, but it will be well worth the effort. Almost nothing will improve your financial well-being more than having awritten financial plan for your future.

Assuming you already have a written financial plan, it’s a good idea to review it on at least an annual basis, and probably more often. I try to have a formal review of my goals about once per quarter, but I’m constantly looking at my plan in the interim, even as often as weekly. For your formal review, check to see if your assumptions and future plans are still the same, and adjust your goals and milestones as needed.

Setup a written budget
The number one rule of building wealth over the long-term is living below your means. Even if you make $500k / year, if you spend $501k / year, you’re going backwards. It’s very difficult to live below your means without a budget. You can budget on a piece of notebook paper, in Excel, Quicken, Money, or Mvelopes. I very highly recommend Mvelopes, and you can read my post on it here. It’s not perfect, but it’s the closest thing to perfect for this that I’ve discovered. Your mileage may vary.

Assuming you follow your budget well, you’ll be adjusting things here and there throughout the year, but once a year, it’s a good idea to sit down and review it from the big picture perspective. Compare your budget with your financial plan and your long-term goals and ensure that the budget is in line with your plan.

Prepare a will
When you’re in your twenties, it can seem a little odd to have a written will. But it’s important, especially if you have any assets (including a home or retirement accounts) or children. This is the only step that will cost you something, but it’s important enough to pay for. You can have an attorney do it for about $500 or use a service such as LegalZoom.com, which will run you $70 – 120, including a review of your finished will by an attorney. You may also want to consider creating a living will.

Every year, take a look at your will and make sure that any major changes in your life from the past year are reflected in the document.

Review insurance policies
Insurance is one of those necessary evils in life. It sucks to pay those premiums every month, but if you ever really need insurance, you’ll be glad you have it. Once a year, you’ll want to do a big-picture overview of your insurance protection. Is your coverage adequate? There are too many different situations to cover here, but in general, make sure you have adequate home, health, car, life, liability, and disability insurance. You should also take a look at your deductibles and see if you feel comfortable raising them, which can save you money in your monthly premiums. If you need help with your specific situation, consult a qualified professional, such as a financial planner, preferably one who does not sell insurance products directly.

Setup a filing system
If you don’t already have one, setup a filing system to keep track of your important documents and records. This will be especially useful when tax time rolls around and you need to find those receipts from that charitable gift you made 8 months ago. This probably doesn’t need to be anything too complicated. Depending on your specific situation, an accordion file for each year may be enough. If you need some general tips on setting up a solid filing system, I recommend Getting Things Done: The Art of Stress-Free Productivity.

Check your credit
At least once a year, it’s a great idea to go to annualcreditreport.com and get copies of your credit report from each of the 3 credit reporting agencies. You’re entitled by law to one free copy per year from each agency. If you find any mistakes, contact the agency to report the error. If you’re particularly paranoid about identity theft, you can sign up for a credit monitoring service, which will notify you when new credit is opened in your name, usually within 24 hours. Equifax, one of the 3 credit reporting agencies, offers such a service. Prices range from $4.95 / month for weekly updates on changes to your Equifax file, to $12.95 / month for updates within 24 hours on changes to your files at all 3 of the agencies.

Make copies of important documents and store them somewhere safe
What if the worst happens and your house burns down, turning all your documents and records into ash? Would you be able to get things back in order? It’s a good idea to make copies of all your important documents and keep them elsewhere. Scanned copies can be stored on an encrypted USB drive and kept in your car, at the office, etc. It’s also probably not a bad idea to buy a small fireproof safe and keep your really important original documents inside.

Review your investment accounts and rebalance as necessary
Once a year, it’s a good idea to review your investments as a whole and rebalance to ensure that your asset allocation is where it should be. For example, if your asset allocation plan says to hold 70% in stocks and 30% in bonds, and stocks have outperformed bonds over the last year such that your holdings are 75% stocks and 25% bonds, you’ll want to rebalance to get back to that 70/30 allocation.

Keeping your finances in order doesn’t have to be that time-consuming. Setting it all up initially is the most difficult thing. After that, most of these tasks could be knocked out in one weekend per year. Not a bad investment of time for a lifetime of financial stability and control.

Posted by Madison Jardine on

What is your legacy?

I’m finishing up Winning by Jack Welch, and I wanted to highlight an excerpt from the very last page.  When asked at a conference about his legacy, Jack responds:

First off, I hate the word legacy.  It just sounds so arrogant.  Presidents and prime ministers have legacies.  I ran a company and wrote a book or two.

But here we are at the end of this book, and the question did get asked, so I’ll attempt an answer.

If there is anything I’d like to be remembered for it is that I helped people understand that leadership is helping other people grow and succeed.  To repeat myself, leadership is not just about you.  It’s about them.

I would also like to be remembered as a huge advocate of candor and meritocracy, and believing that everyone deserves a chance.  And I’d like to be remembered for trying to make the case that you can never let yourself be a victim.

He goes on to talk about his family and how much he loves and admires them.  I very highly recommend this book.  If I had a company, it would be required reading for everyone from the janitor to the top executives.

I think that’s probably the best definition of leadership that I’ve ever heard: Leadership is about helping people grow and succeed.

If there are three kinds of people in the world, people who tear down, people who build up, and people who just scrape by, the choice is clear.  Become the type of person who builds others up.  Learn to manage your own life, and then pour yourself into finding ways to help others find their passion, overcome challenges, and reach their dreams.  You won’t regret it.

Posted by Sorrells Garden on

6 tips for shedding the baggage of failure

Yesterday was not quite what it could’ve been
As were most of all the days before
But I swear today with every breath I’m breathing in
I’ll be trying to make it so much more

Cause it seems I get so hung up on
The history of what’s gone wrong
That the hope of a new day is sometimes hard to see…

“Up and Up” by Relient K

I went for a long run tonight and I was listening to this song and thinking about the baggage of failure and how it weighs us down. There are things I’ve struggled with over and over, and sometimes it’s very difficult to try again without having the idea in the back of my head that I’m going to fail. I thought I would write up a few strategies and tips that have helped me move past some of my previous failures.

Reevaluate your goals
First of all, you need do some soul-searching and ask yourself: is this goal still something you want to achieve? Don’t waste your time trying to meet goals that you have little interest or passion for. Not only does it waste your time and energy, your likelihood of success is very low in this situation. Spend some time determining where you are, where you want to go, and what some of the steps in between are. Put it on paper and review it periodically to help keep that source of motivation fresh in your mind.

Be Accountable
I’ve noticed that sometimes I don’t tell people when I set a new goal for myself, and I think part of the reason is that I know I’m probably going to fail and I don’t want the added embarrassment of having my failure be public. But ironically, the very act of telling people about your goals and struggles can be a powerful motivator. If you know that people are going to be asking you about something that you’ve said is a goal, you’re more likely to keep at it. That’s been my experience anyway. On the other hand, if you set a goal for yourself and tell no one, it’s pretty easy to drop that goal when the going gets rough. Accountability for goals is a must. And you need to find the right people to hold you accountable. You want people who will not only encourage you along the way, but also will kick your ass a little if you start to let things slip.

Don’t Compare Yourself
Sometimes when I go to the gym after I haven’t gone for awhile, it’s a little intimidating. I’m not a small guy, but I can’t compare to these 300 lb. guys who look like the hulk, tossing weights that weigh more than me around like they’re nothing, while I struggle with a 10 lb dumbbell. I exaggerate, but only slightly. The point is that too often, I’ve let my embarassment over my current physical situation keep me from going to the gym, challenging myself, and not being afraid if people think I’m not handling very much weight. Discipline is similar. You might struggle with overeating. The last thing you want to do is compare yourself to some vegan freak who only eats weeds and seeds. If you eat pizza and donuts 7 times per week, and you decide to cut back to only have those things twice a week, don’t worry that you’re not at the same level as someone else. You’ll get there. Or maybe you won’t; it’s up to you. The point is, that person has struggles of their own. Don’t hold yourself up to anyone else’s standard.

Break It Down
One giant pie-in-the-sky goal is psychologically very difficult to hit, especially if you’ve had some failures or setbacks in that area. If you weigh 300 lbs and would like to get down to 200, that’s great. But break your goal down into more manageable steps, like losing 1 lb per week for the next month. Sure, you’ll still weigh 296, but you’ll have made some progress and hit a goal that you set for yourself. The psychological boost of achieving a goal is much more important than the 4 lbs and will give you strength and motivation to strive for the next milestone. Of course, you don’t want to set your goals too low. There’s no benefit in setting extremely easy goals for yourself. The trick is to set goals that still stretch you some, but not so much that you’ll break.

Take It Slow
Don’t try and change everything all at once. I notice that a lot of people try and completely reinvent themselves overnight. It’s true that sometimes you need to shake things up and make drastic lifestyle changes in very short periods of time, but if you’re writing a list of 57 goals every New Year’s and then trailing off by the end of January, it might be because you’re trying to do too many things at once. I’ve been guilty of this, even as recently as this last January. But what I’ve come to realize is that if I take it a few goals at a time and accomplish those things, build the habits and discipline, and then move on to the next thing, I can accomplish 57 goals in a year. The trick is to not try and do it all at once.

Train for self-discipline
Self-discipline can be thought of like a muscle. If you use poor training methods, strategies, and techniques, you decrease your chances of success and increase the likelihood of injury. Similarly, if you don’t learn good techniques for training yourself to form good habits, you won’t see very much progress and you will likely quit. For more information on self-discipline, try this series by Steve Pavlina.

Bonus: Track your progress
I’ve found it very helpful to track my progress against my goals. Whether I’m trying to control my spending, eat healthier, or keep up with a fitness program, keeping a log or journal of my progress helps keep me on track. I use Google Docs & Spreadsheets, but a simple notebook, text file, or back of an envelope would work just as well. Track your progress as often as you can. If the goal is to do something every day, note each day that you meet that goal. The point is to have a record that shows you progress over time and helps you see clearly when you had issues. I’ll be writing more about this in a later post.

Well, I hope some of this was helpful for someone out there. Life is driven by entropy, and is always tending towards a state of disorder, but you can put energy into your life and fight that trend. We’ve all failed and had setbacks. Don’t let that baggage drag you down into a vortex of failure. Just pick yourself up, take a deep breath, and try again. The only shame is in quitting.

Posted by admin on

Wealth in Scripture

Interesting article about the subject of wealth in the Bible. The author discusses how some commands and admonitions regarding wealth in Scripture no longer strictly apply under our modern economic and monetary systems, though the underlying principles still apply. Written by a professor from my wife’s alma matter.

Posted by admin on

A Few Favorite Personal Finance Books

Rich Dad, Poor Dad by Robert T. Kiyosaki

When I was about 19, this book changed my entire outlook on money and finances. Looking back, and reading through the book now, I see a lot that I disagree with, but it sparked my thinking about how to manage money, and what financial freedom truly means. Not a practical book, but definitely a good start if you have no “financial motivation.”
The Millionaire Next Door by Thomas J. Stanley

This book, which I read recently, is the result of years of research of America’s millionaires: how they live, what they wear, what cars they drive, how they made their money, etc. It was definitely inspiring to me, and also got me thinking about the impact of wealth on future generations, both good and bad.

Cashflow Quadrant by Robert T. Kiyosaki

This book builds on Rich Dad, Poor Dad and goes into detail about how to build multiple streams of income and gradually reduce your reliance on earned income. It contains overviews of the impact on personal finances and income of things like real estate investment, entrepreneurship, and investing in businesses.
The Richest Man in Babylon by George S. Clason

This is a deceptively simple book that contains a series of financial parables that teach the importance of always saving, the power of compound interest, investment, insurance, and other time-tested financial truths. Easy read and a good reminder of some very basic lessons. Again, good to read if you find yourself lacking that “financial motivation.”

Posted by admin on

Can money buy happiness?

Everyone always says that money can’t buy happiness. I’ve always liked to say that money can’t buy happiness, but it can buy relief from certain types of misery. Perhaps an example will be helpful.

Every time I fly commercially, about the time I’m shuffling through security with my shoes in one hand and my recently-torn-apart bag in my other, I think about the indescribable joy that private air travel would be. My feeling escalates as I’m herded onto a plane that is probably older than I am, and sit down between two enormous women who both have toddlers that are vying for the title of the World’s Most Annoying Child. By the time the beverage cart creaks by at the express speed of .00756 mph and the Flight Attendant informs me that the last of the orange juice was just given to the grubby little urchin screaming his head off next to me, I’m ready to kidnap the little bugger and sell him on the black market to finance the purchase of my jet.

Relax, I’m not in the business of peddling children. Yet.

Anyway, the point is that flying commercially is miserable. Absolutely terrible. Could money buy relief from that? Certainly.

However, even I’m willing to admit that this is a rather unproductive example. Most people will never set foot on a private jet, so it’s not really a viable alternative to commercial travel.

A more representative type of misery that most people go through is financial slavery. In fact, to say that most people go through this is misleading, because the majority of us will spend most of our lives mired in financial slavery, “working jobs we hate so we can buy shit we don’t need.” (Fight Club)

Let me give you a few examples of more common types of misery that characterize financial slavery:

  • Not being able to spend time with your family because you have to work two jobs
  • Not being able to provide adequate food, shelter, clothing, medical care, etc for your family
  • Constantly being stressed about how you’ll pay the bills this month
  • Getting stuck in a job or city you hate because you can’t afford the risk of trying something new
  • Being a burden on someone else for financial care
  • Seeing your marriage torn apart by the stress and anxiety that money problems cause

The number one cause of divorce in America is money problems. Is divorce miserable? You betcha. It’s a special type of misery that almost always gets passed on to your kids and, if you’re lucky, your grandkids. If the number one cause of one of the most destructive forces in our society is money problems, how can people say that money can’t buy happiness?

I was pondering this today as I walked to work (yep, I walk to work. City living rocks.). In terms of deciding whether money itself buys relief from certain types of misery, the relevant question becomes this: For most of the people experiencing the types of financial misery that I described above, would more money really solve the problem? I think that in most cases the answer is no. Let me explain.

It’s always helped me to think about money not simply as as solution to problems, but as a multiplier of both problems and solutions. If you’re responsible and able effect positive changes with a little money, you’ll likely be responsible and able to effect even greater positive changes with more money. Conversely, if you’re unable to manage small amounts of money without getting in over your head, and you’re constantly thinking that if you just had more money, your problems would be solved, then the reality probably is that more money would only exacerbate your financial problems in the long term. We need only look at Lotto winners, a high percentage of which are bankrupt within a decade of their winnings. Here’s a great article from MSN Money about the subject.

The point is, if you’re not responsible with a little money, you aren’t going to suddenly become responsible with a lot. I think I’m going to have to revise my saying to be the following:

“Money can’t buy happiness, but it can buy temporary relief from certain types of financial misery. However, unless the root cause of that financial misery is dealt with properly, the end result of injecting money into the situation is often worse than the problem was to begin with. Ultimately, the only long-lasting paths to relief for financial misery are death, an infinite supply of cash, or learning proper financial stewardship. Your call.”

Hmmm…definitely not as catchy.